T

Todd

Member
Hi guys,
I've been lurking here for a while but finally had a question to ask. I'm interested in building an RV-8 180hp/CS. I'll obviously need a loan if I want to do this. Here's my question, I'm 21 yrs old tomorrow (already have a VP-1 under my belt and partially completed W-10 Tailwind which I sold after realizing how not fun steel is to work with),and have been working as a retail clerk at the same location for about 3 years. I was in an accident in 2nd grade which the other party's insurance settled with us for $40,000. Unfortunatly I get the money in $5,000 payments every 6 months starting when I turn 21(tomorrow). I'd like to get the money upfront (loan) so I can get going on the project but I'm not sure If I will be approved for one due to my age and not having too much credit history. I was hoping the $40,000 would act as a good asset to the loan company. Does anyone have any ideas? Thanks! -Todd
 
Todd:

Wow..your first post! Welcome!

Generally the loan companies want something like 20% down. Most folks that get loans need them to finish the airplane and they use the airframe cost on the down payment and the remainder of the project as collateral.

If you're going to be getting $5K every 6 months, you can definately do the slow build without a loan. In fact, I think that's a nice steady pace. It took me a little over 6 months for slow-build wings and about the same for the slow-build fuselage.

If you're going to get a loan, I would wait until you have the airframe essentially complete. This is the sure-fire, most economical way to do it. If you get the loan now, you're going to be paying interest on the loan for two more years and you'll have the problem of providing a down payment and collateral. Also, if something happens during construction and it puts your project on hold, you won't have the loan payment on your mind. You can just put the project on hold and come back to it when able.

Just my humble opinion.

Best,
 
5K$ every 6 months is perfect for the slow build ... the first 5K for the tools and empennage, then about when that's done you've got the cash for the wings, etc. You shouldn't have to take a loan for a while...

I would also avoid going into debt if possible - why pay interest to a bank if you've got that $ coming in?

T.
 
Not that it's any of my business and you don't need to address it here, but I hope that $40k has been earning interest for the last 15 years. You should have roughly three times the original amount by now.

I agree with the last poster. Use the money coming in to do a slow-build. I'm doing something similar. I'm paying as I go (have tools, tail and wings) and will decide in the end whether to take out a loan for the engine or just buy one.
 
Don't spend your $!!!!

Todd,

Let me play a little bit of devil?s advocate here. It sounds like you are not talking about spending the incoming funds on the -8, but rather using it as collateral towards a loan. This is good in that at least you aren?t talking about spending the money on the kit (at least I hope not). I know this wasn't in the spirit of your original question, but based on some of the responses I feel compelled to provide my $.02.

You are a YOUNG guy, and when it comes to $ that means you have one huge advantage? time! What I am getting at here is the concept of the time value of money. You?ve got a nice chunk of change coming in, but do yourself a favor, resist the urge to spend it on discretionary items such as an airplanes or fancy cars. Instead, save it, invest it, buy something with some tax advantages (e.g. home), but as hard as it is for me to say this, don?t waste it on a toy (RV-8) at this point in your life. Make your money work for you now (at a young age) and you will have a lot more long-term choices.

If you aren?t financially savy, and you have sizeable lump sum coming in, please seek professional help. Consult a certified financial planner, in the long-term you will probably find that it was the best investment you've ever made.

Good luck!
 
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Brad - I wanted to say the same thing, but didn't want to sound patronizing. I agree. A chunk-o-change like that (especially if it's been growing) left alone could fund a good chunk of his retirement.

He's 21, and assuming he'll retire at 65:

40k at 8% for 44 years = $655,248.67 in a taxable account, or $1,182,238.87 in a tax exempt or tax-deferred account.

If it's been earning interest and say he's got $100k coming:

100k at 8% for 44 years = $1,638,121.68, or $2,955,597.17 in a tax-exempt or -deferred account.

The above not adjusted for inflation.

My advice: move as much as possible every year into a Roth IRA. Then max a 401(k) every year, even if it means living on some of the lawsuit income.
 
Thanks for the warm welcome and quick replys guys. I'll try to address everyone one by one-
Brad- I had planned on using the 40k Im getting to fund the project with a loan to help cover the engine, prop, etc.. However saving the money and getting a loan to cover the entire cost is something I had not considered. I would like to get as small of a loan as possible though so I may just get a loan to cover the engine etc and use the kit as collateral. I was bitten by the homebuilders bug(nasty thing that is) and have been twiddling my thumbs looking for something to build ever since I let go of my Tailwind. I know the project may not make the most financial sense at this age, but perhaps due to my youth I see this money as something I can have fun with yet still investing it in something worth while..ie not beer and girls :)
Jamie/Thomas- I think your right. The 5k every 6 months should cover the airframe nicely.
Matt- Unfortunatly when insurance settled with us I was 7 or 8 years old and didn't know that we got any money(got bit by a family friends dog, we didn't sue, their insurance called us one day and told us they were going to give me some money! good deal) My mom set up the payment schedule over 10 years ago so I'm afraid its too late to do anything about interest. I did ask her about interest and she said she worked it so I got the most possible :confused:
Thanks again for the help everyone. I think I should be able to hold off on the loan for a while. Todd :p
I almost forgot-I had planned on spending the money on college but I'll be going into Navy ROTC this spring so they'll cover the bill for school.
 
Todd, back to your original question...

One of the easiest ways to get a loan with little credit history is this:

Stick a chunk of that money in a CD at your bank (yes guys, CDs are terrible, but it needs to be a CD in this scenario). Take out a loan for the amount of the CD, secured by the CD. Put the proceeds of the loan into an interest-bearing account at the same bank, set up with automatic payments toward the loan.

You're basically depositing money, borrowing your own money back, and building a payment history. The bank will report the loan performance to the credit bureaus.

After making some dumb financial mistakes (at your age), I did exactly this to start my credit 'repair'. It was easy sailing after about six months of the above. My bank charged the CD rate + 2% for the loan, so the net cost was pretty low.
 
Matt, just got your reply after I posted that last one. Wow... Thats a lot of free money I could get. Maybe I should look into putting that money into a long term savings account and getting a loan for the project. I wonder if the 40k could act as collateral on a loan?
 
I have to play the devil's advocate too

I know folks get loans its the American way but lets face it an airplane is a toy. You would be much better off delaying this purchase, save your money for important things and then pay for everything except your house with CASH!

Then pay your house off and live debt free.

Time is your most valuable asset for heavens sake don't blow it on toys.

Frank
 
Anytime you get 'free' money, I think you should blow some of it - get it out of your system. But not much - maybe 10%.

Here's an idea: Use the better part of that first check for airplane stuff. $4-5000 will buy you a tail kit and tools. Start saving so you can buy wings later. If you build slow enough, you should be able to finance the project with cashflow instead of a loan, until the engine, anyway.

Those other checks - save 'em. I'm telling you, having that money in savings will help you so much later on. It will help you because you won't have to save as aggressively to 'catch up'. It will free up cash that you'd otherwise have to save.

I generally agree with the other posters that 'toys' aren't as important as saving for the future. But I think a guy needs a balance. Saving for the future is no fun when you can't enjoy life 'now' because you're too concerned with saving every last dime (for a future that might not get here until after you're dead).
 
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Todd,

I hope you didn't find my comments to be too gloom and doom (I don't think you did). The last thing I want to do is come across as the "can't" guy, but I would rather you to benefit from an alternate point of view.

I, like Matt, made some dumb financial mistakes in my younger years (I am 35 now). It took a serious illness at 25 that left me paralyzed for weeks and out of work for almost a year for me to wake up and get my head screwed on straight. Hindsight being 20-20, there are lots of things, with regards to $, I would have done differently. Hopefully you won't have to learn the way I did. :)

Good luck!
 
mdredmond said:
Anytime you get 'free' money, I think you should blow some of it - get it out of your system. But not much - maybe 10%.

Here's an idea: Use the better part of that first check for airplane stuff. $4-5000 will buy you a tail kit and tools. Start saving so you can buy wings later. If you build slow enough, you should be able to finance the project with cashflow instead of a loan, until the engine, anyway.
snipped.
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Todd,
You've been getting a lot of good advice. I suggest that you buy the empennage with your first check. Join your local EAA Chapter or RV group. Don't go out and spend big $ on tools. Often you can buy the tools used here on one of the RV Lists, at Oshkosh, Sun N' Fun or on EBay. I've purchased most of my RV building tools this way. Some of the more expensive tools can be borrowed from your new friends at the EAA Chapter or RV group. The money you save here can be stashed away for the deposit on your wing kit.
One of the best things you can do, is to find an RV builder in your area. Ask Vans to send you a list of them. Call and introduce yourself to one or more of them and offer yourself as a "free" helper. I did this with RV4 builder Jody Edwards. I helped Jody four nights a week for 4 months. Jody taught me how to rivet and lots about sheet metal work. I'm an auto mechanic, but until that time, I had no sheet metal experience. While Jody got free help, I was the one who came out on top. From the start of my 8A project, Jody (who is an A&P, IA) was always there for me when I needed help, a suggestion, tools or aluminum. He is also one of my best friends now.
I "paid it forward" with RV9A builder Peter Laurence. Sunday I stopped by Peter's hanger at HWO to find him riveting the tailcone of his 9A project together. He had newbie RV builder Erik Patterson helping him. So I see that Peter has gone from "grasshopper" to teacher. We all call Jody, ObiwankaJody, the Jedi sheetmetal master. :D My point is that having an RV building "guru" is a great help. Save the rest of your checks for investments which will appreciate in value, like a house. I started my 8A project with $1500 burning a hole in my pocket. It has taken longer than I would have liked, but I've managed to get the airframe nearly done (wiring phase) without taking out a loan. I did my wing and fuselage kits on those 0% introductory credit cards. You should have no problem getting a good deal on a credit card, if you have $5000 or more in a savings account, CD or other bank account, even at age 21. Don't squander your money. It's to hard to earn. Been there, done that, got the Tee shirt and regret all of it. :(
At your age, Alodine and epoxy prime everything. You are young enough to need the RV to last 50 years! Good luck. What part of the country are you in?
Charlie Kuss
 
After reading everyone's excellent advice, I sat back and thought what would I do in your position.

1) Use a little to get started on the tail kit following all of the getting started advice above.

2) Buy a home (don't exclude condos, townhomes here!). Noticing that you location is San Diego that may be a bit difficult pricewise, but the advantages of owning a home are immense. When you get to the point of needing an engine and avionics, you will have an asset to borrow off of if that's what you choose, and you've built a good credit rating . Some roommates (ones you trust completely!) could also help with the cost part.
 
I like the idea of find a local RV builder to buddy up on building. I'll ask Vans if there's any builders around me.
I thought about buying a house but I plan on enlisting in the Navy for 20 yrs (hopefully getting a flying slot) so I don't know if it'd be smart to buy a house since I'd be moving around all the time anyways.
 
If you don't want to buy a house....buy some land. They ain't making any more of it and it will just continue to increase in price.

Congratulations on your choice to join the Navy and thanks. One question I would have though is where are you going to find the time to build if you are in the Navy? Won't they move you around a lot and keep you pretty busy?

I talked to some of the finance companies and they will give loans in stages based on certain phases of the build....Empennage and quick/slow build kit, engine and firewall forward, and then finish kit. These should keep the loans small and managable if it will take you a while to build due to your career.

Just something to think about.

Good Luck
 
I'm HOPING to build it during college and have it done by the time I graduate. 4 years of part time work may be enough. I gotta learn to build like Dan C. :p
 
Buy The House

Todd,

Don't be afraid to purchase real estate because you will someday be on active duty in the Navy. I think I read in one of your post you are in the San Diego area, a "Navy Town". You will have no problems either selling or renting your home to other sailors transferring into San Diego.

If you retain and rent the property if/when you are tranferred by the Navy, someone else will be paying rent, which you can use to make your mortgage payments. You keep the house/condo, and gaining equity. Definate win/win for you.

I've known many career sailors, (I'm retired Navy) who have done the same thing during their careers (wish I had). In fact a couple of them bought homes/condos at every duty station and now after 20-30 year careers own millions of dollars worth of real estate. And the best part for them is that renters (usually other military members) have made most of the mortgage payments with their rent checks.

Something else for you consider...

Good Luck, and enjoy the RV build as well as your future career choice.
 
hmm

Todd said:
I'm HOPING to build it during college and have it done by the time I graduate. 4 years of part time work may be enough. I gotta learn to build like Dan C. :p
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As someone who is probably between your age and most of the other posters, I'll add my .02 cents.

Focus on college and having fun first. A tailkit might not be a big deal, but the wings and fuse will require persistent focus to be done in an efficient and time-minimizing effort. Classes, homework, relationships, friends, ROTC, private pilot, IFR rating, etc. are a full-time job at your age. See how the tailkit works first and then make any big decisions.
 
carriers

Todd,

When you think about when you're going to have extra time on your hands, I'm wondering how hard smuggling a wing-kit onto a carrier would be.

They'd have all the tools and you'd probably have alot of experienced extra hands. Do carriers have hobby shops?
 
srv said:
As someone who is probably between your age and most of the other posters, I'll add my .02 cents.

Focus on college and having fun first. A tailkit might not be a big deal, but the wings and fuse will require persistent focus to be done in an efficient and time-minimizing effort. Classes, homework, relationships, friends, ROTC, private pilot, IFR rating, etc. are a full-time job at your age. See how the tailkit works first and then make any big decisions.
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Thats part of the reason I sold my Tailwind. I felt like I was in college and needed to have "fun" like most other college kids do. However, now that I've had time to do that I realize I would really rather spend my evenings building something cool in the garage than drinking my money away in Tijuana. I know classes will take up a good chunk of my time, but in my free time I really feel a need to be doing something. I can't stand sitting around with nothing to do. I'm girlfriendless at the moment(what a money saver!!), and already have my Private ticket so those are two big thing out of the way :) I agree with you, I'll start with the tail kit in a few months and see if I can handle that timewise. If not, then I'll have something cool to hang on my wall :)
Thanks! :)
 
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